Many business owners and 401(k) plan sponsors are scrambling to understand and comply with the new Department of Labor mandated fee disclosure regulations that will become effective only a few months from now. The new regulations explained under sections 408(b)(2) and 404(a) of the Employee Retirement Income Security Act of 1974 (ERISA) require additional disclosures to be made to plan sponsors and plan participants, and require all plan service providers to furnish much more information about their services, expenses and fees. ERISA section 408(b)(2), the service provider rules, become effective April 1, 2012, while the new 404(a) participant disclosure rules become effective May 31, 2012.

After understanding the factors that necessitate these changes, you may find it surprising that these new regulations were not enacted for all plan service providers years ago. Approximately 70% of the nation’s 401(k) plans were installed and are overseen by broker-dealers that are not plan fiduciaries. It’s very important to avoid confusing “overseer” or “plan provider” with fiduciary. A fiduciary is required by law to always act in the best interest of a client (in this case, the plan). Unfortunately, non-fiduciary plan providers dominate the 401(k) marketplace and are not required under ERISA law to act in a client’s best interest.

Many unsuspecting business owners and plan sponsors mistakenly assume their plan provider is acting in their best interests and more importantly, those of their participants; but caveat emptor. Unless the plan overseer is defined as an ERISA fiduciary for the purpose of making plan investment decisions, they are not liable for breach of fiduciary duty (Hecker vs Deere & Co; United States Court of Appeals, Seventh Circuit - Argued Sept. 4, 2008. -- February 12, 2009). More specifically, non-fiduciaries do not have to disclose excessive and unreasonable costs and fees, unnecessary risks or other conflicts of interest. Instead, they hide behind a smoke screen of misunderstood and misapplied industry terminology. Many recent cases filed involve plan investment options that bear unreasonable costs.

Insurance agents, like broker-dealer representatives, are commission driven sales reps that typically operate in a non-fiduciary capacity when providing 401(k) plans. When you add the number of insurance company sold 401(k) plans to broker-dealer sold plans, the potential for non-fiduciary provided 401(k) plans in our nation dramatically increases.

ERISA 408(b)(2) will also require clear disclosure of who is acting as a fiduciary. This one will no doubt catch many business owners and plan sponsors by surprise when the enormous fiduciary liability on their shoulders is finally uncovered. As a fee-only Registered Investment Advisor operating in an ERISA 3(38) fiduciary capacity, our 401(k) plans are free from the above mentioned conflicts of interest and have provided full fee disclosure and fee transparency since their inception. An RIA, like Talis Advisors, assumes, in writing, the role of a fiduciary to the 401(k) plan.